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We have touched on the value of Transaction Cost Analysis (TCA) for certain client segments in a number of posts, notably Scott Mcleod’s excellent post here.

Multi-Dealer Platforms provide TCA tools, yet most banks still appear to be ‘uncomfortable’ in providing clients with the tools and reports that would enable them to ‘demonstrate’ the quality of execution they achieve by trading on the bank’s SDP, and thus obviate the need for clients to ‘validate’ pricing quality via the MDPs.

Perhaps banks should start to view TCA tools in a similar way for non-algo clients.

TCA is NOT just about “Did I get the ‘best price’?” for each trade. Providing clients with execution reports that help them to understand their own execution behaviour and ratios (execution rate against quotes requested/currency pair) is very valuable for clients.

Actually, such detailed client hit rate ratios are just as valuable for banks (both for sales traders, and for pricing engines), and helps them to learn and understand their clients trading behaviour, and pricing sensitivity.

One Response

re pricing engines- its not just the execution behaviours to consider. But will the move to new pricing models to accommodate clearing-related costs also lead to pricing in remaining bilateral products considering the operational cost of trading *and settling* with the cpty in question ..if someone constantly fails / breaks stp, arguably they should also expect to contribute to the cost of the people who sort their trades out. eg http://mostly.wordpress.com/2008/11/25/behaviouraloperational-data/